From Online To Digital – Part 2

The following article I wrote for FINSIA’s InFinance magazine (June 2010) accompanies the presentation I gave here. Again the writings here are my own opinion based on light desktop research. If you want proper journalism, go here or here!

‘The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.’

Rupert Murdoch made this comment in February 2008 about the future of the newspaper business.

This view of the future applies to all industries, particularly those with large and small players, with old and new organisations, and with the threat of disintermediation and business model disruption on the immediate horizon.

The newspaper business is currently feeling this pain; travel and real estate are facing irrevocable change within their industries; and banking will be next.

Innovation is one of the ways we can counter or even capitalise on this event horizon.

How customers manage their money

A customer might log on via the internet to: view their account balances; make payments and transfer funds via an iPhone app; pay a friend back for a lunch debt by bumping phones together; or find an ATM on the way to lunch using augmented reality; then video chat to a call centre agent via Skye regarding their financial advice needs; or discuss these needs in person with a retail representative using a collaborative touch screen table; and share this information later with friends that have similar needs.

All of this can be done today using existing online and digital technology. And not one of these tasks needs to be facilitated by a traditional bank brand as we know it. A collection of offerings from brands such as Mint.com, Apple iPhone, Skype, Facebook and PayPal can replicate the banking function, and even the relationship, as we used to know it. This is part of the new future that large financial services organisations must prepare for.

A perfect storm has emerged …

So why is this upon us? And what is happening that is making this change occur at such breadth and pace? A perfect storm has formed on a range of fronts:

• Economic conditions were drastically shunted. In a post-GFC economic environment, business models have been stretched and tested. While Australia’s banks and financial institutions have fared relatively well through the global financial crisis, the Australian market has not been totally unaffected, and pressures on wholesale funding remain an ongoing issue.
• Consumer behaviour changed irrevocably. After 10 to 15 years of economic prosperity, consumers have become far more comfortable with certain kinds of debt instruments and they are now able to make purchase and service decisions much quicker, and with greater knowledge and understanding.
• Technology capability embedded itself in our lives. Information technology is ubiquitous, with people’s lives seemingly busier than ever amidst the promise and presence of technology designed to make life simpler and more efficient.
• Changing business models now compete alongside traditional models. This new access to consumption and technology has created new industries and supply chains that deliver products and services to consumers.
  … with lasting consequences
• Trust and security are now highly valued. Large banks and financial services have some advantages here, but they need to convince customers through actions rather than words.
• Customers have greater access to products/services and more knowledgeable about their options.
• Control of the conversation is now shared between the consumer and the organisation. Consumers can now have conversations with other consumers more easily than with large corporations like banks.
• The preferred channel for certain tasks is becoming clearer, with online and digital channels widely preferred for simpler tasks, and face-to-face or voice-to-voice channels preferred for more complex tasks, such as sales conversations or problem resolution.
• Digital interfaces are evolving from a graphical user interface (GUI) (click a link using a mouse on a PC browser) to a natural user interface (NUI) (touch a button using your finger or hands on a mobile device).
• The proliferation of offerings from hardware and software providers such as Apple, Google, Microsoft and Nokia means we must evolve digital interactions from website development to multiple platform display and support.
• Peer-to-peer lending as provided by brands like Zopa means anyone can provide the financial offering of a bank.
• Disintermediation is a reality unless a strong focus on customer centric servicing and adoption of new technologies is established.

Incremental innovation must be accompanied by seismic shifts

There are essentially three key components of creating an innovation response to the new paradigm:

• establish an innovation culture and process;
• create strategic innovation awareness and change; and
• move fast on the tactical dimensions of online innovation.

Rather than a scatter gun or an ad hoc approach to innovation, an innovation culture needs to be created.

In this environment: people become aware of and open to the idea of lateral thinking; a flow of innovative thinking, ideas and practices is generated; processes are developed to enable this flow of ideas to flourish until they are proven; and a method of measurement will be required to analyse the quality, performance and ultimately the return on investment associated with new ideas.

In his excellent book Innovation and the Future Proof Bank, James Gardner, former head of innovation at Lloyd’s TSB, describes five strategic dimensions of business innovation, each with varying levels of potential disruption:

• new business models (PayPal can be described as a disruptive model, Zopa even more so);
• new channel capabilities (mobile is the predicted boom area);
• new markets (e.g. gen Y and the emerging markets in Asia);
• new experiences (better processes such as a mortgage application process); and
• new product forms or evolutions (the credit card was perhaps the last real product innovation).

These are the dimensions in which innovation can enable your business to make a seismic shift towards the future, or be obliterated by an unforeseen threat.

On a smaller level, for those digital and online channel managers under the channel strategic dimension, there are tactical online innovations that can be made. Current trends in this space include mobile and wireless ideas, security and biometric innovation, user-generated content and social media, the simplification and improvement of the user interface, and the massive area of micro, contactless and other payments innovations.

Regardless of your approach, simply keeping your hand on the rudder and steering forward in a straight line may not give you the edge against competitors. The level of innovation that your business needs to stay ahead of the competition may be something as small as a specific channel idea, or an entire business model change.

But, standing still is not an option.

Sidebar content:

10 insights on digital innovation in financial services

• Digital technology is already here.
• Digital is the ultimate scalable environment.
• Mobile services will boom in all forms.
• The role of physical outlets will not diminish, but will change forever.
• A multi-channel mix is unavoidable.
• Your brand needs to be anywhere, anytime on any device.
• The power is in the cross-integration.
• Good user experience and design are critical differentiators.
• Customers are more in control now than ever – don’t waste that opportunity.
• It’s not just about online and social networks, it’s about digital connections and relationships.

Quick thanks: To Brett King for opening this part of my brain. Buy his book!